Tracking Team Performance – Keystone Habits for Financial Controllers
Regardless of how much work your accounting team is accomplishing on a daily basis, tracking KPIs is the only way to accurately gauge performance.
This article is part 4 of a 4-part series focused on “Keystone Habits for Financial Controllers.”
While successfully meeting deadlines for invoices is important, there is so much opportunity to improve your business through accounts payable efficiency. These opportunities include improving command over short-term cash flow, boosting your bottom line by capitalizing on rebates and early-pay discounts, and decreasing your company’s risk of fraud.
The necessary steps to achieving these broader benefits include shifting spend away from paper checks, decreasing the amount of time required to process and pay an invoice, and centralizing operations to eliminate redundancies.
If you’re looking to lead your accounting team to a more strategic approach that can drive improvements across the business, these KPIs will measure your team’s progress toward getting there.
Percentage of Electronic Invoices
According to a benchmark study by the Hackett Group, the average cost to process an electronic invoice is $3.13, compared to $7.99 for paper invoices. Factors that contribute to the cost of paper invoices include, material and printing costs, shipping and postage costs, personnel costs, space costs for archiving records, and the higher costs associated with human error. Since electronic invoices are less expensive to process and also much more secure, you should be setting targets that drive employees across the organization to use this option over the manual alternative.
Average Time to Invoice Payment
Average Time to Payment is the metric that is most indicative of Accounts Payable Cost Per Invoice. The formula to calculate this metric is also simple:
Total Time Spent Processing Invoices / Total Number of Invoices Processed
The clock on Total Time Spent Processing Invoices for each invoice starts running as soon as the invoice is received and continues running until your vendor receives the payment. Keep in mind that the targeted Average Time to Payment may vary from company to company, as some businesses like to hold onto cash longer than others.
For this reason, the lowest Average Time to Payment is not always the best. The key is to understand the Average Time to Payment target that gives you the command over cash flow that you are looking for.
Percentage of discounts captured against discounts offered
Many vendors will offer early payment discounts – a clear-cut way to save the company money. Your suppliers benefit from getting paid in a timely manner. You benefit from the discount. Mitigate the number of missed discounts by tracking the reasons why they are missed.
Percentage of erroneous payments
Duplicate payments and payment errors are a major strain on accounting resources. The average payment error rate for AP organizations is 2 percent, but this number varies significantly across companies.
While it’s first important to track down dollars lost to errors, it’s also important to track types of errors, and build processes to avoid any that are recurring. The most common reason for erroneous payments is human error, making a good case for automating processes whenever possible.
Automating accounts payable has enabled businesses to drive improvements across all of these metrics by streamlining invoice processing, centralizing all accounts payable operations, and enabling easier access to electronic payment methods.
Curious to see what your AP process could look like with automation? Contact MineralTree for a personalized demo.
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